| | | | | other securities are traded in the stock market. |
| The objective of any economic activity is to | | | | Money flows in daily through the trading of these |
| promote the well-being and standard of living of the | | | | securities. Secondary market is one of the main |
| people, which depends on the distribution of income | | | | segments of financial system of the country. |
| in terms of real goods and services in the economy. | | | | Securities Contracts (Regulation) Act, 1956, regulates |
| For the growth process in the economy, production | | | | the stock exchanges in the country. The investment |
| plays a vital role. Production of output depends | | | | environment in India is easily the most amiable for |
| upon material inputs, human inputs and financial | | | | individual investors. The capital market is fairly |
| inputs. Material inputs are in the form of physical | | | | well-organized and growing fast too. There are |
| materials like raw materials, plant, machinery and | | | | government sponsored investment schemes, as well |
| buildings. Human inputs are in the form of labour and | | | | as private sector sponsored investment schemes, |
| venture. Financial inputs are in the form of capital, | | | | representing the true options of a mixed economy. |
| cash and credit. The proper co-operation between | | | | Mutual funds are collective investment schemes and |
| human and material inputs subject to the easy | | | | they are an important constituent of the capital |
| availability of financial inputs promotes the growth | | | | market. India has a long history of mutual funds. |
| process in the economy and thereby promotes the | | | | The Unit Trust of India is over 25 years old and |
| well-being and standard of living of the people. | | | | other mutual funds are just 3 years old. The |
| The financial inputs emanate from the capital | | | | investible fund in mutual funds has increased |
| market system. Trading in money and monetary | | | | significantly. Mutually funds provide the benefits of |
| assets constitute the activity in the capital markets | | | | diversified portfolios, expert investment advice and |
| and are referred to as the capital market system. | | | | management. So far, mutual funds have been set |
| Savings mobilization and promotion of investment are | | | | up by public sector financial institution like LIC, Unit |
| functions of the stock and capital markets which are | | | | Trust of India and commercial banks like Indian Bank, |
| a part of the organized financial system in the | | | | State Bank of India and Canara Bank. All the mutual |
| country | | | | fund schemes are highly safe and provide nominal |
| The term “Capital Market” is used in the | | | | return and are very successful. |
| wider sense as to include both the new IPO market | | | | Derivatives, as the name implies, derive their value |
| and the stock market. In this sense, both primary | | | | from the underlying securities/assets like stock, |
| and secondary markets are covered here. Trading | | | | foreign exchanges, commodity, bond, etc. |
| in the stock market is debt claims of a medium and | | | | Having discussed the security market instruments |
| long-term nature which can be classified into those of | | | | of primary and secondary market, it is needless to |
| the Government sector and of the private sector. | | | | mention that, the Indian capital market has |
| The securities of government are traded in the stock | | | | undergone a sea change in the post-independence |
| market as a separate component, called gilt-edged | | | | era. More particularly, the stock (Share) Operations |
| market. These securities include those of the | | | | has witnessed a spurt of activities with the |
| Central and State Governments, local bodies, | | | | liberalization of the economy and active participation |
| semi-government bodies and those guaranteed by | | | | of development banks. |
| the Government. In this market, there are again | | | | Against this background, the liberalization in the |
| three types of securities - short, medium and | | | | primary capital market was mainly aimed at greater |
| long-dated Government securities, depending on the | | | | autonomy to corporate and better transparency for |
| maturity period. Another component of the stock | | | | investors. These included free pricing norms for |
| market deals with trading in corporate securities such | | | | issues, removal of interest ceiling on debentures, |
| as equity shares, preference shares and | | | | abolition of the position of Controller of Capital Issues |
| debentures. Equities are shares of companies of the | | | | and dropping of mandatory conversion of debt to |
| ownership category. When these equities are | | | | equity by term lending institutions, Derivative |
| floated to the public for the first time by the | | | | trading. Statutory powers were conferred on the |
| companies as shares, they constitute the new IPO | | | | Securities and Exchange Board of India (SEBI) and |
| market, which is a component of the capital market | | | | comprehensive measures were taken for investor |
| and when the same securities are traded again and | | | | protection in the form of laying down disclosure |
| again as secondary items, they constitute secondary | | | | norms, allotment procedures, control over insider |
| markets .Derivatives are also introduced in the capital | | | | trading, rights issue norms, handling of investor |
| market for the benefits of small and institutional | | | | complaints, etc.,All India development banks have |
| investors. | | | | promoted individually and collectively, new institutions |
| The new issue market deals with the raising of | | | | to help investors and entrepreneurs. |
| fresh capital either for cash or for consideration other | | | | To operate efficiently, capital market and financial |
| than cash by companies and encompass all institutions | | | | institutions have to be guided by market forces |
| dealing in the issue of fresh claims. The forms in | | | | rather than government directives. Competition |
| which these claims are incurred are equity shares, | | | | needs to be strengthened by encouraging the entry |
| preference shares, debentures, rights, bonds, | | | | of new and innovative providers of financial |
| deposits, miscellaneous loans and so forth. All the | | | | services. And all the players of the capital market |
| financial institutions in the capital market which | | | | need to introduce discipline in their activities and |
| contribute, underwrite or directly subscribe are part | | | | transparency in their transactions. Further Financial |
| of the new issue market. | | | | derivatives and their regulations of trading activities |
| The placement of the IPO may be | | | | should be streamlined by security exchange board of |
| through (a) prospectus (b) offer of sale and (c) | | | | India and other legislative authorities pertaining to |
| rights issue. | | | | security market in order to protect the interest of |
| Already issued and listed securities are traded in the | | | | investing community at large. |
| secondary stock market. Shares, debentures and | | | | |